Reforming local government finance – a phrase that is enough to send many of us to sleep. But put a different way, devolving financial powers to our great cities, allowing local innovation and genuine localism, may keep your interest for longer!

May saw the launch of an excellent policy report called Raising the capital. The report was produced by the London Finance Commission, an authoritative wide ranging group of experts from both inside and outside politics, but crucially including experts from Birmingham and Manchester. The commission was chaired by respected Professor Tony Travers of the London School of Economics.

The report highlights that barely seven per cent of all the tax paid by London residents and businesses is directly retained by the Mayor and the boroughs. The equivalent figure in New York is over 50 per cent. Similar comparisons can be made between London and world cities such as Madrid, Paris and Berlin.

The report specifically argues that funding arrangements in London should allow London government to make additional self-determined investments in its own infrastructure, both to cater for the growth already forecast for its population and economy, and to promote additional economic growth.

It recommends devolving a range of tax raising powers to London – which could easily apply to other great cities in England – to bring greater control and democratic accountability to local elected politicians. There is evidence that people are happier with the outcome of decisions, or at least more content, if they are made locally. And we know from the devolution we have seen in Wales, Scotland and Northern Ireland that it does not lead to worse economic outcomes and there are different solutions for different areas.

Given that London is expected to reach 10 million people by 2030, it is long overdue that we should have far more financial autonomy than is currently the case. However, there is no reason at all why these recommendations could not become a model for other large cities in England and start to answer the concerns in parts of England that we are being left behind, particularly as the Scottish Independence referendum comes over the horizon.

Suggestions in the report include:

Devolving the full range of property taxes including stamp duty land tax, capital gains property development tax, council tax and business rates.

Relaxing the borrowing limits for housing purposes for local councils.

Permissive legislation to allow smaller new taxes such as a tourism tax or environmental tax.

Under the new proposals London would get the right to set, collect and spend certain taxes, and in the first year this would be cost neutral. Any grants London receives would be reduced on a pound for pound basis for whatever is raised. However in the longer term, there is the potential for increased income and setting Londoners free from ‘the Whitehall knows best’ approach. This would allow the Mayor and the Boroughs to have far greater control over spending and investment decisions in the capital.

I believe that the time has come for significant devolution to London and for many of England’s cities.

Devolving power has long been a Liberal Democrat objective. It is time we allowed Londoners and people living in our great cities the same kind of decentralised power as enjoyed by millions of people living in large international cities. Indeed in the wise words of Professor Travers it is only in the UK that these recommendations would be considered even remotely radical.

* Caroline Pidgeon is the Liberal Democrat London Assembly Member and chair of the London Assembly Transport Committee

15 Comments

Precisely. What money there is, is continually being moved from smaller towns and rural areas to the cities, leaving them to little more future than to become dormitory towns for commuters or a slow decline back to little more than what a market town was in the 18 century.

The deliberate sacrifice of these towns outside the favoured South East is the biggest injustiuce we have perpetrated in coalition.

I think you have missed the point here. This would be cost neutral – grants for London and other cities would reduce pound for pound in the first year of operation of this scheme and then remain at the lower level.

Caroline, I’m afraid you have missed my point. London and the cities have already had the benefit of the extra monies (or more accurately in recent years a lesser reduction in the monies received) and now it is proposed that they get the opportunity to raise more money directly. In the long term that will insulate you from Pickles, leaving the rest to bear the whole of the cuts. Remember a freeze in grant at present for local authorities is almost unheard of. In South Lakeland we lost over 36% in 3 years, a mere freeze would be a holiday!

The great cities prior to about the second half of the twentieth century were the ones which actually provided a lot of the services even before national government took an interest. Belfast in the 1950s provided public transport, gas, electricity and water. These services extended into suburbs in adjacent council areas.

I haven’t done the calculations recently, but some years ago about half the income of my London borough was from ‘Government grant’. As the borough is by no means poor, this means from the income tax and VAT that was paid by its own citizens. I wonder how wasteful the long road through Whitehall taken by that money was.

So very much Yes to what Caroline says, but as a first step to a better system of local government tax, finance and equalisation.

The report highlights that barely seven per cent of all the tax paid by London residents and businesses is directly retained by the Mayor and the boroughs. The equivalent figure in New York is over 50 per cent.

interesting that the solution from a London-centric perspective is the cities. The City perspective never recognises that in the country as a whole the towns and conurbations work as a functioning part of the rural areas around them. So the model has to be either ‘city-regions’ or ‘regional govt’.
But clean sheet of paper, Liberal Democrat approach is that everything is local, unless it needs to be dealt with at a higher level, ie the opposite of the condescending devolving of centralised powers.

Despite the legitimate criticisms from the countryside and small towns, there is something to celebrate here. Nothing persuaded me more of David Milliband’s inadequacy as a potential prime minister than his ducking of local government finance reform when he was the responsible minister, making sure the Lyons Report was not too radical and then kicking the remaining proposals for change into the long grass – no doubt at Gordon Brown’s behest, but he could have stood up to him.

A few years back, a couple of neo-“liberal” Tory rightwingers wrote a series of articles on local government finance and planning issues (I’m sorry I don’t have the reference). They came up with some frightening extreme-free-market ideas, such as abolishing all planning controls on use of land of wildlife or scenic interest and relying on the purchasing power of the RSPB and suchlike to compete in a free market with developers. But their analysis of practice in selected foreign countries (Germany, Switzerland, Australia) was very interesting. Germany, they found, had many planning controls. But the local authorities had far more revenue-raising autonomy than their British equivalents, and so when considering a proposal for some development, they weighed up the social disbenefits against the benefits to the local economy (whose growth would bring them in more revenue) more equally).

Among European democracies, ours is remarkable for the concentration of power at the centre and particularly for the inability of local authorities to finance their own activities. There is a need for some equalisation mechanism so the poorest areas can pay for necessary services (likely to be more expensive than in the richer areas because of greater need), and there is a case for limited central government funds to be available, ring-fenced, for projects central government particularly wants to push, if central government has the money to spend; but that should be the limit of central government grant. Wherever possible, money for local services should be locally raised. He who pays the piper calls the tune.

@Simon: The pound-for-pound refers to the current value of taxes currently going to the treasury. e.g. if stamp duty on London properties went to the Mayor then the grant to the mayor would be cut at the same time by the current value of that tax. The value to Londoners would be that we could raise the rate for more revenue, lower it for more housing mobility or change thresholds to reflect London’s price structure.

Once again this raises the problem of our skewed democracy. Previously the greater economic wealth of the English economy allowed us to graciously grant improved regulatory powers to the Scots, Welsh and Northern Irish without any obligations in return.

Now that the English economy is so divided between the ever increasing wealth of London and some parts of the South East compared with the rest, the myth of a truly united kingdom is becoming ever clearer. There is every reason to recognise the United Kingdom as being a federal state and the Westminster parliament as being only concerned with the total economy, foreign affairs and defence.

With such a federation each part needs to have a minimum population, area and economic wealth, so it is unlikely that anything less than the size of Northern Ireland should or would be considered.

Each would have its own parliament, with greater powers than those enjoyed by the present Scottish Parliament and an immediate campaign for such a federal state should, excepting blind anti-English nationalism, prove very attractive to the Scottish people.

Dividing England needs discussion, probably six or seven areas would be viable, of which Greater London should be one. Each would have its own ‘Capital’ – lots of fun in deciding exactly where, and a parliament. And lets not get hung up with the name, a parliament in a democracy is an assembly of representatives coming together to govern. So a federal parliament can easily coexist with regional parliaments!

The Liberal Democrat party is the party of localism and the devolving of power should be a major part of its policies. I think that if we pursued the concept with real vigor and commitment, unlike AV, then the party will be seen as the party of the future and attract a lot of new support.

Not a bad concept when all politicians are seen by many as being merely self serving, definitely not worth voting for.

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